Sins of Compensation: Top Mistakes During Company Milestones

This series shares how to prevent the top compensation mistakes in five stages of the employee journey.

In this article, we’re exploring mistakes and solutions in the company milestone stage.

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How you treat employees during company milestones such as new funding rounds, layoffs or acquisitions affects headcount, finances and morale. Here are the top 3 mistakes companies make during major milestones and how to prevent them:

Mistake #1: Immediately following layoffs with salary range increases

Solution: Hold off on retention bonuses until the end of a specified period

If you lay off a number of people and then immediately give remaining employees an increase, you create a lot of distrust in the organization. Employees who now have to absorb the work of colleagues who were let go will now question whether layoffs were necessary.

If you want to keep a critical employee for a certain period before they’re laid off, offer them a retention bonus that’s paid at the end of that period. And be very clear on the terms. (Make sure you revisit salary ranges in the process.)

Mistake #2: Leaving employees who were terminated in an acquisition empty-handed

Solution: Take care of the employees who helped you build the company

“If you’re going through an acquisition and have identified people who won’t be part of the transition, take care of those folks,” says Ashley Brounstein, OpenComp’s head of people. “They helped your company succeed, so reward them with a severance package that acknowledges their contribution to getting your company to this next level. “

Employees who stay will appreciate that move, too, because how you treat employees during all stages of the employee lifecycle becomes a part of the company culture, building either negativity or trust.

Mistake #3: Relying only on recruiters and candidates for international comp data

Solution: Collect quality comp data so you can produce accurate salary ranges for new international roles

The rules for reliable comp data apply to international hires, too. If you’re expanding outside the United States, it’s worth investing in fresh and relevant comp data for the local market.

Do not base your comp strategy solely on:

Recruiters
Agencies
Candidates
Guesses
Local cost of living

All the above are good indicators and comp data points, but relying solely on them makes comp an art rather than a science, says Brounstein. That puts you at risk for underpaying, overpaying and throwing off internal pay equity.

After analytics platform Incorta acquired a company in Egypt, using third-party salary data was part of the effort to create consistency and “one company,” Incorta’s SVP of People Success Sheri Kelleher says on the High Growth Matter podcast.

“We use one consultant and they work tirelessly to get us regional data in a not so popular region, so it's worth the effort,” says Kelleher. “I think that being consistent and making sure that you lay that foundation is super important.”

Mistake #4: Ignoring the new comp benchmarks for your new company valuation

Solution: Make comp adjustments to ensure everyone is paid at the new market standard

New level, new market data. After each funding milestone, reevaluate your compensation benchmarks to ensure your salary ranges are still appropriate. If you make adjustments, update your compensation philosophy, too.

If possible, update pay for existing employees so you don’t have pay inequities between them and new hires.

Get it right

Use OpenComp's Market Pulse

Benchmark your data with new peers and market shifts as your company matures and changes. You can also adjust your salary ranges in any scenario modeling you’ve done in just a few clicks.

Start using Market Pulse for free today.